Meta Platforms Inc.’s stock has enjoyed an “outstanding” rally this year, but Loop Capital analyst Rob Sanderson sees room for it to push even higher.
Despite a near doubling for Meta’s stock
META,
so far in 2023, Sanderson upgraded it to buy from hold Monday. He noted that cost-cutting momentum has helped the stock to date but there’s still opportunity for Meta shares to benefit from revenue momentum.
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“While we view expense rationalization as more a one-time driver, we have become increasingly positive on the revenue picture,” he wrote. “Three significant headwinds to revenue (Apple ad tracking changes, foreign exchange and transition to Reels) are all cycling through and set to become tailwinds.”
These factors, on the whole, have had perhaps a “mid-teens percent” negative impact on Meta’s revenue, Sanderson continued.
He called Meta’s product story “as good as it’s been in some time,” with several compelling avenues.
“We think enthusiasm for Advantage+ is for good reason, driving performance for advertisers and better utilization of Meta’s full suite of ad inventory,” Sanderson wrote of a Meta feature that allows for the automation of campaigns. “This appears to be a monetization driver that has legs and could carry for many more quarters.”
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He also feels “more bullish” on the revenue opportunities stemming from Meta’s Reels content format that competes against TikTok.
“Feedback from brand advertisers on Reels performance is increasingly positive and advertising products continue to evolve quickly,” he wrote.
Given that short-form video platforms “have become landscape-changing forces in the advertising and e-commerce markets” in China, where this type of format is farther along, Sanderson expects that Reels will “become another big flywheel for Meta and help to open large revenue opportunities in social commerce.”
Meta is still in the early days of monetizing Reels, to the point where users’ time spent engaging with this type of content format has been a drag on revenue. But Sanderson thinks “the headwind from Reels should already be turning to tailwind” by the end of the year, with “meaningful room” for Meta to grow Reels’ revenue contributions.
